Puma Biotechnology Priced Like Takeover Target: Real M&A

AstraZeneca Plc sells the cancer drugs Iressa and Zoladex. The company, facing the loss of patent protection by the end of 2014 for drugs producing more than 40 percent of its sales, has experienced repeated setbacks in developing new products. Photographer: Tim Shaffer/Bloomberg

March 12 (Bloomberg) -- Puma Biotechnology Inc.’s surging
valuation is stoking optimism its chief executive officer will
succeed in selling his second straight drug developer to a major
pharmaceutical company.

Puma’s experimental breast-cancer treatment is viewed so
favorably that its shares fetch $822 million after less than 11
months of trading, more than all other U.S. peers that also had
no sales in the past year, according to data compiled by
Bloomberg. The stock has doubled since April even though Puma
only just started enrolling patients in the final stage of
testing neratinib, which it licensed from Pfizer Inc. in 2011.

CEO Alan H. Auerbach sold his previous venture, Cougar
Biotechnology Inc., for about $1 billion to Johnson & Johnson
before U.S. regulators approved its prostate-cancer drug that’s
turning into a billion-dollar product. While any oncology-focused drugmaker may consider purchasing Puma given its
prospects, they may wait until its phase 3 is completed, Cowen
Group Inc. said. UBS AG says Puma could fetch about $40 a share,
37 percent more than yesterday’s price.

“It’s a management team that’s made people a lot of money
in the past, and almost certainly will do the right thing for
investors,” Eric Schmidt, an analyst at Cowen in New York, said
in a telephone interview. Auerbach has “picked up another asset
on the cheap from Pfizer and is doing a great job with it.”

Raising Money

Puma licensed neratinib from Pfizer in 2011 and raised $60
million that year from a private placement to fund development
of the experimental breast-cancer drug. After the stock began
trading over the counter in April 2012, Los Angeles-based Puma
collected about $129 million in October from a sale of shares,
which were listed that month by the New York Stock Exchange.

While Puma has the most market capitalization among U.S.
biotechnology companies that posted no revenue in the past 12
months, there are bigger drugmakers with some revenue even
though they don’t sell any products. Businesses such as
Pharmacyclics Inc., which is valued at $6.6 billion, receive
milestone payments from partners and other fees. Puma hasn’t
collected such funds.

Auerbach founded Los Angeles-based Cougar in 2003 and sold
it to J&J in 2009 while abiraterone acetate, its experimental
prostate-cancer treatment, was still being developed. The U.S.
Food and Drug Administration approved the drug, which is
marketed as Zytiga, in 2011 for use in patients with late-stage
prostate cancer who had already received chemotherapy. It also
won European approval.

More Patients

Three months ago, the FDA said Zytiga could be used in
earlier stages of prostate cancer, which could spur four times
as many patients to take it, J&J says. Analysts project Zytiga
sales will total $1.3 billion this year, according to the
average of estimates compiled by Bloomberg.

Just as Puma licensed its lead drug candidate from another
company, Pfizer, Cougar got abiraterone acetate from London-based BTG Plc. The employees who helped make Cougar a success
joined Auerbach at Puma, the CEO said in a phone interview.

“My team here at Puma is largely my team at Cougar,” said
Auerbach, a former analyst at Wells Fargo & Co. “When I founded
Puma, we took a lot of pages from the Cougar playbook.”

Auerbach said he has three options for Puma: selling the
company, marketing neratinib -- if approved by regulators --
with his own sales force, or licensing the drug to another
business.

“Today, I am not making that decision,” he said. “My
past history and my future history will always show I will
always do what is in the best interest of the shareholders.”

Starting Enrollment

Puma said in February that it planned to start enrolling
patients in March and April for the third and final stage of
trials generally required for regulatory approval. It’s testing
neratinib in metastatic HER2-positive breast cancer, a typically
more aggressive form of the disease linked to a protein called
human epidermal growth factor receptor 2. A metastatic cancer is
one that has spread to other areas of the body.

The trial will compare neratinib with GlaxoSmithKline Plc’s
Tykerb, testing it in patients for whom two or more prior
treatments have failed. Tykerb produced 239 million pounds ($379
million) in 2012 revenue for London-based Glaxo. Based on
earlier data, Puma’s drug looks like it could overtake Glaxo’s,
according to Cowen’s Schmidt.

“Its overall profile appears superior to that of Tykerb,”
Schmidt wrote in a research report published Feb. 22. In a phone
interview, Schmidt said Puma’s medicine is “clearly active for
breast cancer,” meaning tests have shown it impacts the
disease, though bigger trials are needed to prove its safety and
efficacy.

Neratinib, Tykerb

The test comparing neratinib with Tykerb could yield data
in 2015, and, if approved, Puma’s drug may bring in $1.1 billion
of annual worldwide revenue in 2025, the analyst said.

The American Cancer Society estimates more than 232,000 new
cases of breast cancer will be found in American women this
year, more than any other form of the disease among females.
HER2-positive tumors make up about 18 percent to 25 percent of
cases, according to Cowen.

Results from four second-stage trials of neratinib -- for
both breast cancer and non-small cell lung cancer -- may be
released this year, Auerbach said.

Because of that time frame, potential buyers of Puma may
not make offers until 2014, according to Matthew Harrison, an
analyst at UBS in New York. Still, Auerbach’s history with
Cougar is boosting optimism among investors that Puma’s drug
will prove successful and that the company could be taken over,
the analyst said. He sees a transaction around $40 a share. The
stock closed at a record high of $29.15 yesterday.

AstraZeneca, based in London, sells the cancer drugs Iressa
and Zoladex. The company, facing the loss of patent protection
by the end of 2014 for drugs producing more than 40 percent of
its sales, has experienced repeated setbacks in developing new
products. CEO Pascal Soriot said in a February interview that he
would consider buying companies in the range of $3 billion to $4
billion.

Bristol-Myers, which sells the cancer drugs Sprycel, Yervoy
and Erbitux, lost patent protection on its former top-seller,
the blood-thinner Plavix, in 2012. After spending $2.5 billion
to buy Inhibitex Inc. last year, Bristol-Myers was forced to
halt development of the experimental hepatitis-C treatment it
acquired after patients developed heart failure.

Takeda, Celgene

Takeda, based in Osaka, Japan, bought Millennium
Pharmaceuticals Inc. in 2008, gaining the cancer drug Velcade.
Celgene of Summit, New Jersey, sells the cancer medicines
Revlimid and Abraxane, and just won approval for Pomalyst.

Given that J&J bought Auerbach’s last company when it was
still conducting phase 3 trials, the stage Puma is entering now,
investors may be optimistic about Puma’s takeover prospects,
Funtleyder said.

“Cougar is a good guidepost because you have the same
players involved,” Funtleyder said. “People’s natural
inclination when the management has sold a company before is to
assume that they’re going to do it again.”